Expectations for inheritance tax (IHT) and pension changes are building ahead of the Budget, after a year in which frozen thresholds, record tax receipts and shifts to pension rules have already reshaped financial planning.
HMRC collected a record £8.2bn of IHT in 2024/25, while the freeze to the £325,000 nil-rate band and £175,000 residence nil-rate band until 2030 continues to pull more estates into paying tax. On top of that, pensions are due to fall into estates for IHT purposes from April 2027.
That change alone has altered the advice landscape. As James Corcoran of Lumin Wealth noted, clients who previously faced little or no IHT liability now “have a much more serious IHT bill”.
It has already triggered a wave of pre-emptive activity, from hasty withdrawals of tax-free lump sums to thinking about moving offshore. But advisers warn that the Budget may reshape the rules again – and that planning on rumours has already created pitfalls.
Pension rules: What is set and what is not
The most significant change remains the decision to bring pensions into people’s estates from April 2027 – anything else is speculation and unlikely to happen, according to Adrian Murphy, chief executive of Murphy Wealth.
“It’s difficult to see there being any significant changes to pensions. There had been speculation about the tax-free lump sum allowance being reduced… but the Treasury has ruled out change on this front, only serving to underline why you shouldn’t act on speculation – anyone who did has now brought part of their pension out of the tax shelter.”
On top of that, the chancellor doesn’t need to change anything to rake in more money for the exchequer, as IHT thresholds are set to remain unchanged until 2030, dragging more people into paying it by stealth. Rising asset values, rather than Budget measures, are pushing more estates over the £325,000 and £175,000 limits, he noted.
Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that “the government doesn’t need to say anything in the Budget, because rising asset values will do the work”.
Murphy said the 2027 estate inclusion leaves savers with three options: spend more, gift earlier to begin the seven-year clock, or take out an insurance policy to cover the future liability.
But any of these choices could be affected by two possible Budget measures: a potential cap on the amount you can give to family in your lifetime and the removal of the taper that applies to the seven-year clock on gifts.
What to watch in the Budget
Reports in the summer suggested the government was “exploring the possibility of limiting the total value of one-off gifts” and reviewing the taper, which currently reduces IHT on gifts made three to seven years before death. Removing it would “introduce another cliff edge”.
Another option is extending the period required for gifts to fall out of an estate from seven to 10 years. Coles said this “would make tax planning more difficult and drag more people back into paying inheritance tax”.
While less likely, the Budget could also revisit annual allowances or rules around gifts from income. However, the £3,000 annual allowance “has remained frozen for decades”, reducing its real value and limiting the revenue any tightening could generate.
Major changes to nil-rate bands (the portions of an estate that can be passed on free of inheritance tax, regardless of who inherits them) or spousal exemptions (which allow someone to pass assets to their partner free of inheritance tax, regardless of value) are viewed as politically difficult, but Coles said they “can’t be completely ruled out”.
Practical steps while awaiting clarity
The practical guidance remained consistent across all experts: plan cautiously but avoid knee-jerk decisions.
Coles emphasised that gifting can be effective if done sensibly. “Sensible gifts can help support younger family members… as well as cutting a potential inheritance tax bill,” she said. But she warned that “giving away too much, too soon, can end up doing more harm than good”.
All you need to know about gifting your money can be found here.